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The market for gift cards has doubled in the past 10 years. But what happens
if the retailer goes bust?

Any regular present-giver must at some stage have considered a gift card.
Short of time? Unsure of the recipient's size? Can't remember if they prefer
green or purple? A gift card can solve these perennial dilemmas.

Harold Raymond, a book publisher, recognised this when he launched the UK's
first gift card more than 80 years ago. After questioning the "capacity
for giving pleasure" of many festive gifts, he established a voucher
scheme for book tokens in November 1932 just in time to catch the
Christmas shopping rush.

Today, the gift card and voucher market is worth some £4.7bn, having doubled
in size over the past decade. Businesses account for about half of all
sales, with employers using them to reward staff. The industry is expecting
a bumper Christmas this year, with expected sales of £2bn.

But gift cards so easy to fall back on come with a sting in the tail. Much
of the industry is not regulated, so the cash on gift cards is not protected
if the retailer goes bust. Customers can write to administrators with proof
of their vouchers, but there is no guarantee they will get their money back.

In July, MPs
held a debate on gift-card regulation following a string of retailer
collapses. The Conservative MP Penny Mordaunt, who tabled it, said: "Too
many consumers are vulnerable because companies will not honour what they
put on those vouchers and cards.

"Hopefully, by raising awareness of the problem and the alternatives,
people can become more savvy about what to buy and retailers will be prodded
to come up with more ethical products."

The list of high street retailers that have collapsed into administration over
the past year is long and inglorious. HMV, Blockbuster, Jessops, Comet,
Repubilc and Nicole Farhi are just a few that come to mind. Some continued
to honour gift cards while others declared them invalid.

When a company goes bust, gift-card holders are classed as creditors and by
law must take their place alongside everyone else owed money. Voucher
holders are unsecured creditors, so they usually find themselves at the back
of the queue.

A spokesman from consumer group Which? said: "If a store goes into
administration it may refuse to accept gift vouchers, though this situation
may change. If they do refuse and you need to make a claim, write to the
administrators with proof of your vouchers.

"Unfortunately there is no guarantee that you will get the full value
back, and a claim could take some time for the administrators to process."

If shoppers have bought items costing more than £100 on a credit card and the
supplier folds, they can claim a refund under the Consumer Credit Act, which
states that a credit card provider has equal responsibility with the
retailer for any breach of contract. However, for those who pay for their
gift card in cash, the law provides no protection.

The UK Gift Card and Voucher Association says it is in talks with the
Department for Business, Innovation and Skills to give voucher-holders
better rights.

Andrew Johnson, its director-general, said: "We would like the
administration rules to be changed so that holders of gift cards and
vouchers move up the priority list." The association is also working
with its members to make sure the terms and conditions of gift cards are
more transparent.

Deborah Harvey, 48, from Newport (NasdaqGS: NEWP - news) in South Wales, has been fighting for better
gift-card regulation with fellow campaigner Louise McDaid since 2006, when
both women lost money after the Christmas savings company Farepak collapsed.

Ms Harvey said: "People are not protected and they are often not aware of
the problem until the retailer goes bust and by then it is too late."

The two women run the pressure group Safeguard All Savings, which recently
joined forces with Prepaid Financial Services in a campaign calling on
retailers to ring-fence customers' money this Christmas.

Many shoppers are also caught out by cards expiring after a year or two. The
expiry date is set from when the card was bought, not when the gift was
given, and the date is not always on the card. Industry figures suggest 6p
in every £1 spent on gift cards is wasted.

Anyone considering buying a gift card this Christmas is advised to read the
terms and conditions on the back of the card, and only buy from retailers in
good financial health. It could be worth checking the financial news to see
if there are any concerns over the debt levels of a particular company, for
example.

Alternatively, consumers could choose a card that is valid at more than one
retailer, such as One4all, which is available online or in Post Offices and
can be loaded with between £1 and £500. There is no time limit on spending,
but after 18 months a monthly fee of 90p kicks in until no money is left on
the gift card.

The card, which is backed by the Bank of Ireland (Berlin: BIR.BE - news) , can be used at 17,500 retail
outlets including Debenhams (Other OTC: DBHSY - news) , Argos, WH Smith (LSE: SMWH.L - news) and TK Maxx. Funds from the
cards are kept in a separate account, so customers' money is protected in
the event of insolvency.

Michael Dawson, chief executive of One4all, says: "There is no excuse for
these funds not to be safeguarded.

"This is consumers' money that has been handed over in good faith, and it
should be set aside in some form, either by law or on a voluntary basis, to
protect the funds so that if something goes wrong, people can get their
money back."

Mr Dawson said the UK gift-card industry, while growing fast, was still in its
infancy. "In the US, the gift-card business will be worth $110bn this
year, and they are expecting 11pc of all Christmas sales to be on gift cards
in the UK it is still less than 1pc. We still have a long way to go but
the UK market is already too big not to have some basic regulations."

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